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The pound has work to do if it wants to reform its uptrend against the Canadian dollar.
After staging a strong comeback last week, the Canadian dollar is softer on Monday and looks set to lose more than half of Friday's 0.75% advance against the pound.
However, the currency has done enough over recent days to reset its near-term relationship with sterling, and the pound to Canadian dollar (GBP/CAD) is liable to downside price action over the next five days as a result.
The Canadian Dollar strengthened 1.12% over the previous week, scoring the biggest weekly advance since April. Gains were linked to the strength in the U.S. Dollar, with the two North American currencies once again moving in tandem against European peers.
GBP/CAD dropped into the slipstream of a falling GBP/USD, which was slammed by a washout in 'long' U.S. dollar positions that followed the Federal Reserve's midweek interest rate decision and updated guidance.
GBP/USD had surged into that decision, but soon reversed as investors were disappointed by the Fed's unwillingness to rubber-stamp market expectations for a generous series of further interest rate cuts over the coming months.
For GBP/CAD, the slide now leaves it stuck below the nine-day exponential moving average (EMA), which means our Week Ahead Forecast model is dovish over the coming five days.
Monday sees the pair recover from 1.8554 to 1.8657, but this merely brings the pair close to the nine-day EMA and looks to be a mean reversion that patches up some temporary oversold conditions.
In short, the Monday bounce looks technical in nature and GBP would need to graft harder to flip the immediate trend into something more consistent with a return to pre-Fed levels at 1.88.
Given this, a return to Friday's low at 1.8550 is our preferred stance for now.